After SVB collapse, we saw several banks failed and got taken over by the Fed or other bigger banks.
A recent turmoil in regional banks is $NYCB. They had to cut their dividends drastically and had to take money from PE. Even then, some analysts think the turnaround will take a long time given that they had to increase their reserves for bad loans in CRE, aka commercial real estate.
Now, you must be thinking…who else is going to be in deep s***? Top real estate CEO thinks 500 or more banks will either fail or be consolidated over the next two years. Can we identify some few that will likely be the next $NYCB. And I think we can. To do that, let’s start with their exposure to CRE first. Thanks to guys at Visual Capitalist, we have a nice illustration of it below.
Here is a table of how much exposure they have in CRE. $WFC is quite big with 21.2% but many analysts think big banks are going to be able to weather the storm due to their size. Then which regional banks are have a high exposure to CRE? Bingo. $NYCB. Whopping 57%. Who is next?
| Bank | Total Assets | Total Loans and Leases |
Total Commercial Real Estate Loans |
Share of Total Loans |
|---|---|---|---|---|
| JPMorgan Chase & Co. | $3.9T | $1.4T | $171B | 12.6% |
| Bank of America Corp | $3.2T | $1.1T | $76B | 6.9% |
| Citigroup Inc. | $2.2T | $945B | $37B | 4.0% |
| Wells Fargo & Company | $1.9T | $684B | $145B | 21.2% |
| U.S. Bancorp | $668B | $378B | $56B | 14.9% |
| PNC Financial Services Group, Inc. | $557B | $319B | $49B | 15.5% |
| Truist Financial Corporation | $543B | $317B | $42B | 13.3% |
| Capital One Financial Corp | $471B | $316B | $49B | 15.6% |
| Bank of New York Mellon Corp | $405B | $66B | $7B | 10.0% |
| State Street Corporation | $284B | $35B | $3B | 8.8% |
| Citizens Financial Group, Inc. | $226B | $132B | $31B | 23.1% |
| First Citizens BancShares, Inc. | $214B | $133B | $20B | 14.9% |
| Fifth Third Bancorp | $213B | $121B | $12B | 10.0% |
| M&T Bank Corporation | $209B | $99B | $40B | 40.1% |
| Keycorp | $188B | $121B | $19B | 16.0% |
| Huntington Bancshares Incorporated | $187B | $44B | $14B | 33.2% |
| Regions Financial Corporation | $154B | $151B | $17B | 11.5% |
| Northern Trust Corporation | $146B | $117B | $6B | 4.7% |
| New York Community Bancorp Inc | $111B | $86B | $49B | 57.0% |
| Zions Bancorporation, N.A. | $87B | $51B | $15B | 29.3% |
M&T Bank $MTB with 40.1%. One after that is Huntington $HBAN with 33.2%.
According to M&T’s filings, they said “Higher provision for credit losses in the recent quarter reflects continued pressure on investor-owned commercial real estate borrowers and a $1.7 billion increase in loan balances from September 30, 2023 to December 31, 2023.” For $HBAN, “The provision for credit losses in 2023 was $402 million, an increase of $113 million, or 39%, from 2022. The increase in provision expense over the prior year was driven by a combination of loan and lease growth and modest overall ACL coverage ratio builds throughout 2023 that is reflective of the current macroeconomic environment“. But they recently reclassified REITS so it’s no longer included in CRE…making their exposure artificially lower. Shady, huh?
This doesn’t even account for unrealized losses from their bond holdings. “Treasury/Other reported a net loss of $543 million in 2023 compared to $124 million income in 2022. That’s a swing of $667 million.
Yes, these banks are hemorrhaging money. And with Fed’s BTFP (Bank Term Funding Program), which tried to prevent other banks from failing, ended. So it’s just a matter of time when we see banks like $MTB and $HBAN fail despite their effort to financial engineer to avoid their losses by sometimes intentionally putting some CRE non-delinquent.
When will this happen? We don’t know. That’s why we have leap put options. Again, do your own deep dive and see if this investment thesis makes sense for you to even consider.